Gujarat High Court
Bharatkumar Nihalchand Shah vs Income Tax Officer, Ward 2(1)(1) on 7 March, 2023
Author: N.V.Anjaria
Bench: N.V.Anjaria
NEUTRAL CITATION
C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5353 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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BHARATKUMAR NIHALCHAND SHAH
Versus
INCOME TAX OFFICER, WARD 2(1)(1)
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Appearance:
MR. TUSHAR HEMANI, SR. ADV. WITH MS VAIBHAVI K PARIKH(3238) for
the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1,2
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CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 07/03/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) Heard learned senior advocate Mr. Tushar Hemani assisted by learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate Mr. Varun Patel for the respondent department.
2. By filling this Special Civil Application under Article 226 of the Page 1 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined Constitution, the petitioner has challenged notice dated 30.3.2021 issued by the Assessing Officer under section 148 of the Income Tax Act, 1961 in respect of Assessment Year 2015-2016 seeking to reopen the assessment of the petitioner. The petitioner has also prayed to set aside further proceedings pursuant to the said notice.
3. It is the case of the petitioner that during the year under consideration, the petitioner was engaged in the business of trading in and broking of shares, commodities and securities, including transactions in derivatives. The activity was carried on through the recognised stock exchange. As per the case of the petitioner, all the purchases and sales were reflected in the Profit and Loss Account.
3.1 The case of the petitioner was selected for scrutiny. The Assessing Officer issued notice dated 21.8.2017 under section 142(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') calling upon the petitioner to furnish details including the details of future derivatives. The details were furnished by the petitioner by letter dated 31.8.2017.
3.2 The details of the business activities were furnished by the petitioner included Return of Income, Statement of Total Income and Audited Annual Accounts as well as Tax Audit Reports. It was stated before the income tax authorities that all the transactions and derivatives were included in the Profit & Loss Account and that the resultant loss or profit was related to normal business activities. Eventually, assessment was framed against the petitioner under section 143(3) of the Act by order dated 8.11.20217 determining the total income at Rs. 45,02,006/-
3.3 At this stage, the respondent issued the aforementioned notice dated 30.3.2021 under section 148 of the Act seeking to reopen the assessment in respect of the year under consideration. Reply was filed by Page 2 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined the petitioner on 26.4.2021. By letter dated 17.8.2019 and 9.11.2021, request was made to the income tax authorities to furnish the information and documents including the reasons for reopening. The respondent supplied the reasons recorded for reopening.
3.4 The reasons indicated that reopening of the assessment was proposed on the broad ground that the petitioner had credited profit and loss of Rs. 74,62,860/- and that as per the information received, the petitioner was engaged in reversal trade resulting in non-genuine business loss or gains. It was the allegation that from the data made available under project Falcon, the petitioner had credited profit/loss of Rs. 74,62,860/-.
3.5 The following were recorded by the Assessing Officer styling as reasons seeking to reopen the assessment, "From the data made available under Project Falcon, it is seen that the assessee had created a profit/loss of Rs. 74,62,860/-. Both, buy and sell trades have been executed on the Bombay Stock Exchange."
4. The main plank of submission on behalf of the petitioner was inter alia that the reasons recorded for re-opening were scanty and non-specific. It was submitted that the reasons suffered from vice of vagueness. No nexus between the alleged transactions and the escapment of income chargeable to tax is indicated, it was submitted. It was also not indicated that the transactions allegedly referred to resulted into loss or profit. The names of shares of future options, it was submitted, were not given in respect of which the allegations of involvement in reversal trade by the petitioner were alleged. The names of entities with whom the investigation was carried out, were also not disclosed, submitted learned senior counsel for the petitioner. No details were furnished in relation to Page 3 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined the date of the alleged transactions.
4.1 On the other hand, learned advocate for the respondent raised contentions to oppose the prayers on the basis of affidavit-in-reply filed on behalf of respondent No.1. In addition to contending that the petition was filed at premature stage, it was submitted that since the notice for reassessment came to be issued beyond period of four years, requirement of Assessing Officer having reason to believe that income had escaped the assessment, as well as failure on the part of the petitioner to truly and fully disclose the material, stood satisfied. It was stated that information was received from the from the project Falcon from DGIT (Investigation) Mumbai on the inside portal which was regarding premeditated trading at the Bombay Stock Exchange by the assessee by engaging in reversal trades in liquid stock options resulting into non-genuine business loss or gains. The affidavit thereafter proceeded to discuss about the merits, and the trading done and the method adopted regarding trading. According to the submission of the Assessing Officer, the information disclosed the escapement of income, therefore powers under section 147 of the Act were sought to be invoked.
5. Without going into any aspect on the merits of reopening, the ground of assailment by the petitioner-assessee that the reasons are cryptic and that they did not furnish details, on the basis of which the petitioner could defend his case, merited acceptance. Looking at the reasons again, what is only stated by the Assessing Officer is that, "From the data made available under Project Falcon, it is seen that the assessee has created a profit/loss of Rs. 74,62,860/-". Both buying and selling of trades have been are executed at the Bombay Stock Exchange". This statement is a non-detailed and completely escapist. It does not give any fact regarding the transactions or other attendant facts except saying that Page 4 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined assessee had engaged in the trading at the Bombay Stock Exchange to create profit or loss. Though styled as reasons, the ground of reopening is unreasoned.
6. The necessity to incorporate reasons in the administrative, quasi judicial or judicial orders are repeatedly emphasised by the supreme court. In Assistant Commissioner, Commercial Tax Department, Works Contract and Leasing, Kota vs. Shukla and Brothers [(2010) 4 SCC 785], it was stated that the requirement of providing reasons can never be disposed with, "The increasing institution of cases in all Courts in India and its resultant burden upon the Courts has invited attention of all concerned in the justice administration system. Despite heavy quantum of cases in Courts, in our view, it would neither be permissible nor possible to state as a principle of law, that while exercising power of judicial review on administrative action and more particularly judgment of courts in appeal before the higher Court, providing of reasons can never be dispensed with. The doctrine of audi alteram partem has three basic essentials. Firstly, a person against whom an order is required to be passed or whose rights are likely to be affected adversely must be granted an opportunity of being heard. Secondly, the concerned authority should provide a fair and transparent procedure and lastly, the authority concerned must apply its mind and dispose of the matter by a reasoned or speaking order. This has been uniformly applied by courts in India and abroad." (para 10) 6.1 In S. N. Mukherjee vs. Union of India [(1990) 4 SCC 594], the insistence of and importance of recording reasons for decision by the administrative authorities and Tribunals was justified by observing that, "administrative process will best be vindicated by clarity in its exercise". It was stated in Assistant Commissioner, Commercial Tax Department, Works Contract and Leasing, Kota (supra) that in exercise of powers of judicial review, the concept of reasoned order has been equally enforced by the courts in India. Absence of reasons by the Page 5 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined administrative authorities and the Tribunals, would render the order liable to judicial chastisement. The reasons are necessary to enable the appellate or higher courts to exercise their jurisdiction appropriately.
6.2 It was then observed in Assistant Commissioner, Commercial Tax Department, Works Contract and Leasing, Kota (supra), "....It is the reasoning alone, that can enable a higher or an appellate court to appreciate the controversy in issue in its correct perspective and to hold whether the reasoning recorded by the Court whose order is impugned, is sustainable in law and whether it has adopted the correct legal approach. To sub-serve the purpose of justice delivery system, therefore, it is essential that the Courts should record reasons for its conclusions..." (para 12) 6.3 Recording of reasons in order is essential feature of dispensation of justice. In Kranti Associates Private Limited and Another vs. Masood Ahmed Khan and Others [(2010) 9 SCC 496], the supreme court stated that order passed by the quasi judicial authority or even administrative authority affecting the rights of the parties must speak and that is must not be like the "inscrutable face of a sphinx".
6.4 The principles for recording reasons came to be summarised by supreme court in Kranti Associates Private Limited (supra), "a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.
b. A quasi-judicial authority must record reasons in support of its conclusions.
c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.
d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.
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e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.
f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. j. Insistence on reason is a requirement for both judicial accountability and transparency.
k. If a Judge or a quasi-judicial authority is not candid enough about his/ her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.
l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons' is not to be equated with a valid decision making process.
m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions".
o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, Page 7 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process." ( para 47) 6.5 In Sant Lal Gupta and Others vs. Modern Cooperative Group Housing Society Limited and Others [(2010) 13 SCC 336], the supreme court stated importance of reasons referring to other decisions on the point thus, "The reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same, the order becomes lifeless. Reasons substitute subjectivity with objectivity. The absence of reasons renders an order indefensible/unsustainable particularly when the order is subject to further challenge before a higher forum. Recording of reasons is principle of natural justice and every judicial order must be supported by reasons recorded in writing. It ensures transparency and fairness in decision making. The person who is adversely affected must know why his application has been rejected." (para 27) 6.6 On the basis of the propositions laid down in different decisions by the supreme court above referred and others, the following legal principles on the point in issue may be enlisted,
(i) "Reasons" are of paramount importance. "Reasons" are heartbeat of every conclusion. It introduces clarity in any order. Without the reasons, the order is lifeless.
(ii) The concept of reasoned judgment has become an indispensable part of basic rule of law and, in fact, is a mandatory requirement of procedural law.
(iii) It is only clarity of thoughts that leads to proper reasoning, which becomes a foundation of a just and fair decision.
(iv) Insistence for recording of reasons is intended to subserve the Page 8 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined wider principle that justice must not only be done but it must also seen to have been done. The reasons are requirement for ensuring judicial accountability.
(v) Reasons reflect candidness on part of decision maker. The decision making process becomes transparent by virtue of reasons. In absence,, it is impossible to know whether the person deciding the issue is faithful to the doctrine of precedent or to the principles of incrementalism.
(vi) Reasons in support of decisions must be cogent, clear and succinct. A pretense of reasons or "rubber-stamp reasons" cannot be equated with a valid decision-making process.
(vii) Reasons also facilitate the process of judicial review by superior courts.
7. In light of the above discussion highlighting the indispensability of reasons in the order passed by any authority administrative, quasi judicial or judicial, when it comes to exercise of powers under sections 147 and 148 of the Income Tax Act, 1961, there has to be a greater thrust for necessity of recording reasons. The entire exercise of reopening hinges on the reasons recorded by the Assessing Officer. It is the 'reasons' which weigh with him.
7.1 When the concluded assessment is to be revisited with by the Assessing Officer, recording of reasons for exercise of such powers has to be viewed as vested rights for the assessee. While exercising powers under the Act to reopen the assessment, the Assessing Officer would harbour reasons to believe that on particular set of facts, the income had escaped assessment and tax was not paid in relation to the year under Page 9 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined consideration.
7.2 All the reasons which hold good in the eye of and with the Assessing Officer must be made known to the assessee. Assessee has right to refute the reasons for reassessment by filling objections. Unless the Assessing Officer appropriately delineates and communicates the reasons for reassement, right of the assessee to file objections would remain an eye-wash.
7.3 Whether the reassessment powers are adverted to on objective basis, whether the element of assessment of income is noticed from the facts and whether formation of opinion by the Assessing Officer is based on some relevant facts or not, could be judged provided the reasons are properly recorded and the details are given with regard to reopening of assessment that the reasons to believe with the Assessing Officer must be reflected in recording of such reasons to be communicated to the assessee.
7.4 The cryptic way of recording of reasons like found in the instant case, would render the exercise of powers vitiated. With such vague reasons the respondent could be said to have failed to demonstrate that there was any escapment of income chargeable to tax. He could demonstrate such element, if he gives reasons for the same.
8. In the aforesaid view, notice issued to the petitioner under section 148 of the Act in respect of the Assessment Year 2015-2016 is liable to be set aside on the aforesaid ground alone.
9. Accordingly, the petitioner deserves to succeed. The notice dated 30.3.2021 issued by the Assessing Officer under section 148 of the Income Tax Act, 1961 in respect of Assessment Year 2015-2016 seeking Page 10 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023 NEUTRAL CITATION C/SCA/5353/2022 JUDGMENT DATED: 07/03/2023 undefined to reopen the assessment of the petitioner, is set aside.
10. The Assessing Officer is not precluded from proceeding again against the assessee by issuing fresh reasoned notice, provided law of limitation permits.
11. Accordingly, the present petition is allowed as above.
(N.V.ANJARIA, J) (NIRAL R. MEHTA,J) C.M. JOSHI/pps Page 11 of 11 Downloaded on : Sun Sep 17 22:29:18 IST 2023